A v. B

DCMP 1953/2022

[2022] HKDC 833

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1953 OF 2022

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REASONS FOR DECISION

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A.  INTRODUCTION

1.  The plaintiff’s application, by way of the Originating Summons dated and filed on 9 June 2022, for (1) a Norwich Pharmacal order (“the Norwich Pharmacal Order”) requiring the defendant to disclose details, records and/or documents in connection with the opening of a bank account (“the Bank Account”); and (2) a gagging order (“the Gagging Order”) restraining the defendant save for the purpose of seeking legal advice from disclosing these proceedings and the proceedings to be commenced by the plaintiff to any third party, was heard by me on 25 July 2022 (“the Hearing”).

2.  The defendant made clear by way of solicitors’ correspondence that it would adopt a neutral stance, subject to it being given sufficient time for compliance with the court order and indemnified with costs.

3.  At the end of the Hearing, I granted the two Orders sought by the plaintiff, but in revised terms, after taking into account the defendant’s concerns and for the reasons detailed below.

4.  As the present application involves a point affecting the position of a bank in a like situation which may be of wider interest to parties other than those to the present proceedings, it is desirable for me to deal with it in my Reasons for Decision (which I indicated at the Hearing to be handed down on a later date), with directions anonymizing the parties and referring and identifying them not by their names but respectively as Party A and Party B. For the obvious reason, the details which may have the effect of disclosing the parties’ identities are omitted wherever appropriate.

B.  APPLICABLE LEGAL PRINCIPLES

5.  The principles governing an application for a Norwich Pharmacal order are well-established as set out in cases like A Co v B Co [2002] 3 HKLRD 111 at §§10-13 per Ma J (as his Lordship then was) and A1 & Another v R1 & Others [2021] HKCFI 650 at §§55-56 per Coleman J.

6.  The three main requirements include as follows:-

(1)  There must be cogent and compelling evidence to demonstrate that serious tortious or wrongful activities have taken place. Where allegations of fraud or something similar are made, the degree of proof required must be correspondingly high.

(2)  It must be clearly demonstrated that the order will or will very likely reap substantial and worthwhile benefits for the plaintiff. Where a tracing claim is made, there must be a serious possibility that the discovery sought will either allow the plaintiff to preserve what may well be his assets or realistically lead to the discovery of such assets.

(3)  The discovery sought must not be unduly wide. It follows therefore that not only must the order be specific, it must also be restricted to those documents or those classes of documents that are necessary to enable the plaintiff to preserve or discover assets. It is important that the discovery to be made is necessary.

7.  A gagging order is granted where there are grounds to believe that once a wrongdoer is aware that he is being pursued, steps may be taken to frustrate any claim that may be made against him or any investigations being carried out (see A Co v B Co (supra) at §38; A1 & Another v R1 & Others (supra) at §§60-61).

C.  NORWICH PHARMACAL ORDER

8.  As for the Norwich Pharmacal Order, the plaintiff has adduced cogent and compelling evidence to show that serious wrongful activities have taken place.

9.  On the plaintiff’s case, in 2016, an executive director (“the Director”) of a listed company (“the Company”) presented her and her husband with an investment opportunity of subscribing for shares and/or convertible bonds of the Company.

10.  The plaintiff transferred a sum (“the Sum”) from her own bank account to the Bank Account as provided by the Director.

11.  Later on, the Director informed the plaintiff’s husband that the subscription had not been approved by the Company yet. The Director however agreed that in case the subscription did not go through, he would transfer his shares in the Company to the plaintiff or her husband.

12.  In early 2019, the Director told the plaintiff’s husband that the investment opportunity was “cancelled”, but promised to make full repayment of the Sum by way of two installments within 30 days. No such repayment was made by the Director.

13.  After some time, the Director contacted the plaintiff’s husband, telling him that the repayment would be made as soon as possible.

14.  Thereafter, the Director could no longer be contacted, nor was repayment ever made by him.

15.  In 2019, the plaintiff’s husband reported the matter to the Hong Kong Police Force.

16.  In early 2022, the solicitors acting for the plaintiff and her husband wrote to the Company and the Director demanding for repayment of the Sum. In reply, the Company said that it had never made any offering of any shares or convertible bonds to the Director or the plaintiff.

17.  Next, the plaintiff has also clearly demonstrated that substantial and worthwhile benefits would or would very likely to be reaped by the Norwich Pharmacal Order. There is no or little dispute that the information and documents sought from the defendant would, as submitted by the plaintiff, enable her to identify the holder of the Bank Account and hence the correct party, among others, to be sued in due course.

18.  At this juncture, it is necessary to point out that on the plaintiff’s evidence, it appears to be the case that the plaintiff should have already come to notice of the name of the holder of the Bank Account when she made the payment of the Sum but no step has been taken by her to commence any legal proceedings since then.

19.  This might well be the case, but on the other hand it is relevant to bear in mind that the fact that a wrongdoer has been identified does not by itself necessarily mean that a Norwich Pharmacal order should not be made by the court (see A Co v B Co (supra) at §27).

20.  In an application for Norwich Pharmacal order, what a court should do in deciding whether or not to exercise its discretion is to balance the competing interests of the victim of an alleged wrongdoing and an innocent party caught up in such wrongdoing.

21.  In the present case, I should be cognizant of the fact that the information sought by the plaintiff from the defendant is restricted to the opening of the Bank Account and is not unduly wide. Furthermore, on the plaintiff’s submission, the intended claim to be commenced should still be within time.

22.  Lastly, in terms of the precise scope of the Norwich Pharmacal Order, considering that the plaintiff’s solicitors merely in the pre-action letter requested the defendant to disclose (1) the name; (2) the company number, if applicable; and (3) the address of the holder of the Bank Account, and further that the plaintiff has not been able to identify, with precision, what other additional information would be required by her at this stage, I see it appropriate to limit the details, records and/or documents to be provided by the defendant to these three categories only.

23.  Accordingly, the plaintiff has been granted the Norwich Pharmacal Order, but in revised terms by reason of the matters explained above.

D.  GAGGING ORDER

24.  I am also satisfied that there is a strong case that the Gagging Order should be made. As submitted by the plaintiff, should the holder of the Bank Account become aware of the intended claim to be commenced, steps might be taken to frustrate the same with the effect of the plaintiff’s interests being seriously jeopardized.

25.  The manner in which the plaintiff has proceeded with her application for the Gagging Order however causes some concern and requires further discussion below.

26.  It has come to my attention upon review of the documents as follows.

27.  As set out in the plaintiff’s affirmation of service, on 14 June 2022, the plaintiff’s solicitors served on the defendant the Originating Summons filed on 9 June 2022 and returnable on 25 July 2022, together with the supporting affirmation, pursuant to which the plaintiff applied for both the Norwich Pharmacal Order and the Gagging Order.

28.  On 12 July 2022, the defendant’s solicitors replied, stating that they would stay neutral in the said application provided that they were given extra time for compliance with the court order to be made and costs.

29.  In between the date of service until 12 July 2022, and subsequently, the date of the Hearing (on 25 July 2022), the plaintiff did not apply for and there was therefore no interim order in place.

30.  As confirmed at the Hearing, the plaintiff took the view that since the defendant had been served, and therefore should have notice of, the Originating Summons, practically speaking, no interim order was necessary for the period between the taking out of the Originating Summons and the date of the Hearing, when the court would decide whether or not to grant the intended Gagging Order. Effectively, the defendant was entrusted not to disclose these proceedings and the intended claim to third party contrary to the intended Gagging Order without it even being made in the first place.

31.  Ultimately, whether or not the plaintiff applied for any interim order and by so doing whether or not her interests would be safeguarded were entirely matters for her. But what is more problematic is the prejudice that would or might be caused to the defendant by the plaintiff.

32.  The kind of potential prejudice faced by a bank in a situation similar to the present one was explained in A Co v B Co (supra):-

“42. A strong prima facie case having been made out that a gagging order should be made, are there any factors that should militate against such an order being made in the exercise of the court’s discretion? Here, of more substance were Mr Kinnison’s submissions based on whether the court’s jurisdiction should be exercised in the present case. Chief amongst these was the prejudice which would or might be caused to the defendant. The bank’s concern is that it has now been made aware of the plaintiff’s claim on breach of fiduciary duty and the tracing claim it intends to make. This may very conceivably include monies at the moment held in accounts at the defendant. In these circumstances, if instructions were to be given to operate the relevant accounts, the defendant might be put in a dilemma. Should it follow the instructions (which would probably involve monies leaving the bank) and therefore risk a claim by the plaintiff based on constructive trust (knowing assistance)? Or should it decline to follow the instructions given by its customer and risk a claim by the customer for breach of mandate? Whichever decision the defendant arrives at in such a situation is of course a matter for it to take and banks not infrequently have to make such decisions (usually upon legal advice), but where a gagging order is in place, its ability to make enquiries is seriously hampered. The defendant is thus put in an invidious position.

43. In the present case, what adds to the defendant’s difficulties is that, predictably, the plaintiff of course reserves its rights against the defendant in the event it complies with any instructions regarding the relevant account…(emphasis added).”

33.  Coleman J in A1 & Another v R1 & Others (supra) made the same observation about the undesirability of putting a bank in a difficult position:-

“15. The steps taken by the Applicants prior to making the application seemed to me to identify why it was not one which needed to be made urgently. As it happens, in this case, the Applicants took what I think is the slightly unusual approach of writing (by their solicitors) to the Banks on 3 March 2021 (5 days before the application papers were delivered to court) informing the Banks of the Applicants’ intention to make the application for a Norwich Pharmacal order, and providing the draft affidavit material (without exhibits) setting out the factual background and the basis of the application, as well as the draft of an order to be sought, the draft originating summons, the draft skeleton argument and the draft list of authorities. The unusual aspect is not that the Banks were invited to identify their likely response to an application, but in the fact that the letters to the Banks also invited the Banks to note that an application would be made for a gagging order, and the Banks were asked to treat the letter and its enclosures as strictly private and confidential, and to refrain from taking any steps which would be contrary to the gagging order including notifying any third party (as well as the relevant account holder or connected persons) of the letter, the draft order and other enclosures or their contents.

16. As Mr Geiser accepted, the Banks were in effect being asked and trusted not to do something contrary to a gagging order which had not yet been made, and which might not be made. Whilst I do not suggest that the trust was misplaced, this approach might have placed the Banks in a difficult position vis-à-vis their own customer, to whom they owe certain obligations or duties arising from the banker/customer relationship.”

34.  However much a victim of an alleged wrongdoing would deserve protection in a timely manner, the interests of an innocent bank should also be duly taken into account by the court.

35.  It must always be borne in mind that like banks in many other similar cases, the defendant is an innocent party. By nature, a Norwich Pharmacal order is made against an innocent party whose only involvement is to become mixed up in the tortious or wrongful activities of others. It is not the plaintiff’s case, nor is there any evidence to show, that the defendant has committed any wrongdoing on its part. The defendant has merely got mixed up in the wrongful activities alleged by the plaintiff in providing bank services in the ordinary course of business, including the operation of a bank account happened to be belonging to an alleged wrongdoer.

36.  It is trite that by exercise of its equitable jurisdiction, the court may require a bank to come under a duty to assist a victim of wrongful activities by providing him or her with relevant information to meet justice. The relief nonetheless remains extraordinary. The bank owes obligations and duties to its customers. A bank may be exposed to potential liability in withholding information from its customer of existing proceedings and/or intended claim against him or her.

37.  The procedure recognized by Coleman J in A1 & Another v R1 & Others (supra) to be the correct one, which should be followed in all save the most exceptional cases, was helpfully identified by DHCJ Maurellet SC in Asiya Asset Management (Cayman) Limited v Dipper Trading Co., Limited [2019] HKCFI 1090 for reference of the practitioners.

38.  In the present case, had the plaintiff followed it, and first applied and obtained from the court the Gagging Order against the defendant before applying for the Norwich Pharmacal Order, the defendant would be saved from the potential prejudice and difficulties. Generally speaking, inconvenience and costs are not accepted to be valid justifications.

39.  The question that follows is whether the plaintiff should be granted the Gagging Order in these circumstances.

40.  Notwithstanding that the approach of the plaintiff was problematic as outlined above, I should nonetheless still make the order for the following reasons.

41.  I have taken into account the neutrality of the defendant. At this stage, there is no evidence from the defendant that it has been given instructions by the holder of the Bank Account regarding its operation or they are likely to be forthcoming. The defendant’s solicitors made no mention about this in their reply to the plaintiff’s solicitors on 12 July 2022.

42.  On the other hand, the prejudice to be suffered by the plaintiff if she is refused the Gagging Order is real and the implications could be serious.

43.  The Gagging Order granted however should only be for a limited duration of 60 days from the date of the Order made after the Hearing (on 25 July 2022) or until further order of the court (whichever is earlier). The time given should be sufficient for the plaintiff to take all such appropriate steps and actions, including the taking out of a writ to commence action and to apply to court for interlocutory relief etc., after she gets hold of the relevant information from the Bank.

44.  The parties are also being given liberty to apply to court for further directions, if necessary.

E.  COSTS

45.  The parties are in agreement that the plaintiff shall pay the defendant costs of and occasioned by the application herein and in compliance with the order to be made by the court on an indemnity basis.